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MND NewsWire features plain and simple interpretations of industry related data and events written in a manner that maintains the interest of random readers while still catering to the perspective of a housing market professional.

Homeowners might not have realized it, but the news last Thursday and Friday carried
a double whammy that may be more worrisome than the housing bubble bursting.

First were the news reports out of Florida that nine tornados, up to F3 in
force, had dropped out of the darkness seriously damaging or destroying 1,500
buildings and killing 20 people in the central part of the state. Next was a
report from The Intergovernmental Panel on Climate Change which effectively
eliminated further discussion on the reality and cause of Global Warming. The
Panel's report stated that there is a 90 percent certainty that humans
and their greenhouse gas emissions are causing warming and that global temperatures
could rise by an average of 4.5 degrees by the end of the century.

The effects of such warming are still being debated but some estimates are
that ocean temperatures will increase 1 degree or more (contributing to the
nourishment of hurricanes which are expected to increase in intensity and become
a threat to more northern locations than before) and that sea levels will increase
seven to 23 inches both because of the melting of ice caps and because water
volume increases as it warms.

So what do these two pieces of news have to do with homeowners
other than those directly affected by Friday's weather? A lot.

The tornados were freakish. Not only were they strong - probably the
strongest in Florida in many years - but they were out of season. Tornados
are typically a spring and summer phenomenon. And this follows a winter of record
high temperatures in much of the U.S. followed by paralyzing ice storms and
now record low temperatures across the northern tier. Clearly our weather is
changing, perhaps only temporarily and maybe even independent of global warming.

But news reports of the tornado damage brought a truth home to roost. Victim
after victim, pawing through the wreckage of their homes, told reporters that
they were uninsured, either because their premiums had skyrocketed
into the realm of unaffordable over the last few years or because their insurance
had been cancelled outright.

Therein lays the danger to homeowners and maybe to the whole economy.

According to Ceres, a national network of investors, environmental organizations
and other public interest groups, homeowners' insurance coverage
is at risk in coastal areas that have been hard hit by seven hurricanes in the
2004 and 2005. Ceres' statistics include the following:

FLORIDA: As of last March, 225,971 homeowners' property
policies were cancelled and 224,868 policies were not renewed About 489,418
new policies were written by both private insurers and Citizens, the state-operated
high risk pool. Allstate Insurance had plans to let lapse about 120,000 policies
in Florida by the end of 2006 following cancellation of 95,000 policies in
2005. State Farm, the state's largest insurer announced it would not renew
39,000 windstorm policies in 2006 and plans to cancel all master condo policies.
Premiums were doubling for windstorm insurance in many parts of the state
with owners of 1,500 sf. homes facing premiums of $10,000 for wind damage
alone with total insurance costs of $13,000 and deductibles of up to $18,000.

GULF COAST: Allstate Insurance has indicated its intent
to raise premiums and deductibles and reduce benefits for temporary living
expenses and is dropping coverage completely for 140,000 customers in 18 Louisiana
parishes.

NEW YORK: Allstate is no longer offering new policies on
Long Island, New York City, or Westchester County and will not renew 30,000
policies because of hurricane risk. The company also cancelled 28,000 policies
in 2005. Ceres points out that New York has not had a damaging hurricane for
almost 70 years.

MASSACHUSETTS: Three different insurance companies have
dropped a total of over 23,000 homeowners on Cape Cod and other coastal areas
since 2004.

RHODE ISLAND: Some insurers plan to discontinue homeowner
coverage in coastal neighborhoods and others are limiting or refusing to write
new policies. The state's insurance regulator has been allowing companies
to cancel policies in some neighborhoods so the companies don't leave the
state altogether.

Terms are also being tightened. Ceres states that some insurers in hurricane
prone areas are now basing deductibles on percentages rather than dollar amounts
and that these deductibles can ranges from 1 percent of insured value up to
as much as 15 percent.

Many homeowners have been forced to drop windstorm coverage, keeping only basic
property casualty and liability either because the coverage is no longer available
or the cost is prohibitive. When I inquired about my wind coverage and whether
it covered a catastrophe involving one of six huge Live Oaks that surround my
house I was told it did but that I would have to bear the cost of tree removal,
effectively raising my $1,000 deductible to about $8,500 if even one tree fell.

Add to the woes of coastal homeowners sharply rising premiums in California
and the Southeast from weather related wildfires, ice storms
and unusually severe summer thunderstorms in the Midwest. Flooding
is another issue. Years ago the Federal government was forced to come forward
to insure against surface water when private companies universally dropped flood
coverage. Hurricane Katrina effectively bankrupted the U.S. flood insurance
program ten-times over even though coverage is capped at a maximum of $250,000
- hardly enough to replace most homes in coastal areas.

So, what happens to a homeowner with a mortgage who can no longer obtain homeowners'
or flood coverage? Failing to carry coverage is generally considered an act
of default on the mortgage, and while the lender is unlikely
to start legal proceedings, it will probably "force place" coverage with a high
risk insurer. This can be many times more expensive than traditional insurance
and lenders will usually only arrange coverage for the amount of the mortgage
and not insure contents or owner liability.

And what if you are buying or selling a house in an affected area? If you can't
find insurance you can't get a mortgage. More likely you will be placed
in your state's excess risk pools. Citizens is expected to soon be the
largest carrier in Florida and has been charged with inefficiency and even corruption.
Some states are now considering or have enacted a surcharge on privately issued
policies to help fund their high risk pools. But, if weather-related claims
continue at the pace of the last few years it is unlikely that even state and
federal coverage will be sustainable. Then what happens to the housing market?

Comments

A great way out of this dilemna is changing over to an RV living style. An RV can evacuate from coming storms and still provide cheap living space. America needs more economical RV parks and fewer energy-pigging McMansions. Each enjoys coastal living, only one pays for it. Its time to beat the insurance companies at their own game and starve 'em out of business.

Jason

on

It looks like Montana, Utah, and Idaho, and Nevada will be seeing an increase in their State Populations. Homes are still quite affordable, and there's a ton of land.

John Ramirez

on

I recently was informed by Allstate that they would not longer cover windstorm and I already have flood insurance. I looked over the policy and they basically cover very little. I looked specifically for those words that nullify the previous statement or place serious conidtions on the statement. I am probably paying for something I will never be able to use. My question is when is this going to stop? I would rather invest that money and save it. Do we really need insurance companies?

Alisa

on

Colorado's housing market is on the rise. I love this state!

Dennis

on

I remember taking a statistics course in college. The professor used insurance companies frequently to demonstrate how the use of statisical formulas can be very beneficial for business. The professor refered to insurance companies as "rip off mobs". They have it figured using statistics, how much money they will lose given the worst case senerio, that they were accurate +/- 2% in most cases.

What is a something you can buy, but have no control over what you have to pay just to own it?
The people who help you with your purchase also have no control over what you have to pay, but people walking or driving down the street DO! And people who have absolutely no financial interest in it control how much you have to pay.
If a person purchases a home, they are required to pay insurance based on what the insurance company deems as "replacement cost". The value of the home is decided by "fair market value" which is determined by what a potential home buyer would pay for a house.
Therefore if a person tells a real estate agent they want to make an offer on my house that is substantially higher than the real value, it is then necessary to get an appraiser that will agree that the house is worth that much money. Now it comes to the loan on the house. Getting the bank to go along with it is the next step.
If all this all falls in line, although it may take several steaks and scotch to get ''er done, my "fair market value", "replacement costs, and property taxes all skyrocket as well as my neighbors.
A person is required, and rightfully so, to protect the mortgage company who loaned them the money to purchase their home.
Unfortunately, the insurance companies who have no investment in the property in any way, shape or form are allowed to set (almost totally arbitrary) whatever they see fit.
This is grossly unfair because a homeowner who has a house that cost $150,000 and owes $25,000 on the mortgage is still required to carry the same amount of coverage that a person who purchased a $150,000 property and owes $120,000 on the property.
Insurance should be set up in a manner that would allow the homeowner to set a selected amount of insurance. Mandatory rates should only include the amount of
money that the mortgage company still has invested in the property, and the homeowner should be able to select the amount of insurance desired over the mortgage. For example, the homeowner above who owes $25,000 but wants to insure the property for a additional $25,000 should only be required to pay for the amount of mortgage debt plus $25,000.
My insurance and taxes are currently governed by people who "guess" what my property is worth and "guess" how much it will cost to replace it!
I understand the insurance companies have been operating for years with their standard methods of operation. It's long time overdue to re-structure the insurance industry.

What is a something you can buy, but have no control over what you have to pay just to own it?
The people who help you with your purchase also have no control over what you have to pay, but people walking or driving down the street DO! And people who have absolutely no financial interest in it control how much you have to pay.
If a person purchases a home, they are required to pay insurance based on what the insurance company deems as "replacement cost". The value of the home is decided by "fair market value" which is determined by what a potential home buyer would pay for a house.
Therefore if a person tells a real estate agent they want to make an offer on my house that is substantially higher than the real value, it is then necessary to get an appraiser that will agree that the house is worth that much money. Now it comes to the loan on the house. Getting the bank to go along with it is the next step.
If all this all falls in line, although it may take several steaks and scotch to get ''er done", my "fair market value", "replacement costs, and property taxes all skyrocket as well as my neighbors.
A person is required, and rightfully so, to protect the mortgage company who loaned them the money to purchase their home.
Unfortunately, the insurance companies who have no investment in the property in any way, shape or form are allowed to set (almost totally arbitrary) whatever they see fit.
This is grossly unfair because a homeowner who has a house that cost $150,000 and owes $25,000 on the mortgage is still required to carry the same amount of coverage that a person who purchased a $150,000 property and owes $120,000 on the property.
Insurance should be set up in a manner that would allow the homeowner to set a selected amount of insurance. Mandatory rates should only include the amount of
money that the mortgage company still has invested in the property, and the homeowner should be able to select the amount of insurance desired over the mortgage. For example, the homeowner above who owes $25,000 but wants to insure the property for a additional $25,000 should only be required to pay for the amount of mortgage debt plus $25,000.
My insurance and taxes are currently governed by people who "guess" what my property is worth and "guess" how much it will cost to replace it!
I understand the insurance companies have been operating for years with their standard methods of operation. It's long time overdue to re-structure the insurance industry.

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